As the Federal government works to axe Labor's carbon pricing system, it's receiving some support from a Danish environmental economist. Professor Bjorn Lomborg is the Director of the Copenhagen Consensus Centre, and has been a controversial figure in climate change debates since he wrote his book 'The Sceptical Environmentalist'. But while he says carbon pricing has failed, he is no fan of direct action either. He joins The World Today.

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ELEANOR HALL: As the Federal Government works to axe Labor's carbon pricing system, it is receiving some support from a Danish environmental economist.

Copenhagen Business School professor, Bjorn Lomborg, is the Director of the Copenhagen Consensus Centre and has been a controversial figure in climate change debates since he wrote his book The Sceptical Environmentalist.

But while he says carbon pricing has failed, he's no fan of direct action either.

Instead he says green technologies will eventually be cheap and effective enough to deal with climate change without all the political angst and confusion.

Professor Lomborg is in Australia to speak at the Creative Innovation conference, Race to the Future.

He joined me earlier today in The World Today studio and I asked him first to clarify whether he's urging governments to take any action at all on climate change.

BJORN LOMBORG: Well we should definitely act. But we should do something else than what we've been trying to do for the last 20 years, which hasn't worked. We've been trying to cut carbon emissions and mostly in well meaning, rich nations, where we say, oh, let's try and cut a little.

Now, that's nice. But the problem is of course, it doesn't matter very much. And it actually has quite a huge price tag which means that most nations eventually sort of run out of steam. They don't want to do anymore.

Take Spain for instance which is practically bankrupt. They're paying more than a per cent of their GDP in subsidies to green energy. Now that's more than what they pay for higher education. That's something perhaps not quite right.

And yet the total effect of all of the cuts that they're going to make, is to postpone global warming by the end of the century by 61 hours. There's just a mismatch between how much we pay and how much good it does.

And in reality of course, we need to get China and India on board. So it's about getting everyone to eventually cut a lot. And that's about innovation. We need to make green energy a lot cheaper. Before we do that we're really not going to solve this problem.

ELEANOR HALL: And yet you've just criticised Spain for subsidising green energy. How do we make green energy cheaper if governments don't support it?

BJORN LOMBORG: Well the problem is that we're trying to subsidise existing, inefficient green energy like solar panels, that are right now still not efficient enough. What we should be doing is spending a lot more money on the researchers to make the next generation of green energy.

Because only once it's cheap enough, preferably when it's cheaper than fossil fuels, then everyone will switch.

ELEANOR HALL: You're very dismissive of the European Union. You say it will pay $250 billion for its current climate change policies each year for 87 years. And that the temperature will be reduced by 0.05 of a degree. Isn't it a question of judgement though about whether this is a high price to pay? Because to look at the statistics differently, that $250 billion annually for the EU is just over 1 per cent of GDP.

And isn't that a reasonable price to pay for an insurance policy, which as Nicholas Stern pointed out - the former World Bank economist - the effect of climate change if we do nothing could be a 20 per cent hit to the global economy?

BJORN LOMBORG: Well we can get into, I think that's probably a little exaggerated. But fundamentally, yes I understand the idea of saying we need to do something. But the point that I try to say is the economists actually calculate how much benefit does this do - the European climate policy. The answer is probably around $7 billion a year. So you avoid about $7 billion of climate damage. Sorry, that's euros. So $10 billion of climate damage, for about $250 billion of expenditure. That's a very poor way to help the future.

If you spend money unwisely, eventually you lose the electorate's willingness to keep spending. Britain is a good example, where people are getting really upset by their bills keep going up and up and up. And eventually reach this point where they're saying, oh, sod it. Just build me another coal fire power plant, which in some way would be the worst outcome of all.

ELEANOR HALL: Well you mentioned Britain, that's of course happened here in Australia as well. The new Australian Government is today taking its carbon policy bill to Parliament. The Government wants to replace an emissions trading scheme and carbon tax with direct government action, where the Government pays companies to reduce carbon in the economy.

As an economist, which system would you say is preferable?

BJORN LOMBORG: Well it's neither of these systems that is going to solve the problem. Now, any economist, if you ask them, would say you need a carbon tax. But what you have to remember is that, first of all requires that China and India and everybody else does it, which there's no reason to believe that that's going to happen anytime soon.

It also leads to a huge amount of political strife, as we've seen certainly in Australia. And finally, it's just not the solution. The solution has to be that green energy becomes so cheap everyone will want to buy it.

ELEANOR HALL: You're saying that governments shouldn't be wasting money, but the idea of governments picking winners and backing a whole lot of speculative research technologies sounds like governments deliberately going out there to throw money around and potentially waste quite a lot of it.

BJORN LOMBORG: Oh, we will definitely not have successes all around. But remember, because researchers are cheap, we will actually waste very little money. The economists actually looked at, if you spend a dollar on research and development in green energy, comparing to other research projects in the past, we estimate that for every dollar you spend, you will avoid about $11 of climate damage.

ELEANOR HALL: Now you say that research is really important. But here in Australia we've had subsidies for solar power, for example. And a lot of industries suggest that if you get a mass of people using a particular technology, that then helps the innovation within the industry. Why do you back research and development, funding but not subsidies for those industries at the same time?

BJORN LOMBORG: Great question. And fundamentally the problem with subsidies is if you spend, like Germany has done, $130 billion on solar panels, most of that money will go to buy the solar panel. But my point is, if what we need is to get much, much better solar panels in the future, instead of spending 5 per cent, the research and development that's necessary, maybe we should spend almost all of it on research and development.

ELEANOR HALL: Is there a point here, you call yourself the sceptical environmentalist, is there a point here where you're just enjoying being contrary?

BJORN LOMBORG: No, I don't enjoy being contrary. And I'd love us to just embrace what's smart policies. But unfortunately policy and politics around the world seems to be focused on making ourselves feel good. If you go talk to the Germans, they will all feel incredibly good about having a solar panel on the rooftop. But unfortunately of course, the problem is the Germans; it'll postpone global warming by 37 hours by the end of the century. Which is really an incredibly large amount of money to do something that we can't even measure in 100 years. So again, my point is let's do the smart things rather than just the ones that make us feel good.